A panel of experts on small business answer questions from BBC News Online readers.
Whether you are worried about growing your company without losing control, or agonising over funding for a new business, our panellists can help you.
Following a strong response, BBC News Online is publishing several sets of answers to your questions. We have tried to include as many questions as possible.
BBC News Online will publish the next set of answers from our panel of small business experts on Tuesday, 30 September.
QUESTION
Keith Moses, England
What are the options for growing a business that designs ladies shoes predominantly for early adopters. Currently this business sources materials from Italy and undertakes actual production in Portugal, which reduces unit production costs by as much as 30%.
Given the difficulty of getting into established UK department stores, we have considered opening our own retail outlet but we were told there was no money to be made from selling shoes.
In the past we considered product placement, celebrity-based advertising, and using agents to serve export markets, but we needed capital injection to move on this. What options do we have?
ANSWER
Anita Roddick, founder of The Body Shop
Lucky you. This is a product line where you can claim your fame easier than in apparel. What is on offer in the UK can be really dull or jaw-dropping creative.
Camper is a company based in Majorca which uses the peasant footwear as inspiration. Learn everything from them. Go on their website, look at their stores and their retail design.
It is a perfect example of how little money you need to pay for interior design in the fashion world.
'There is no money to be made in shoes'?? Hah! Tell that to Bata or to Prada! Firstly get your product right. Keep it creative, use the soles for messages that turn the whole concept of shoes upside down, like Camper does.
Design a great catalogue, hawk it around (without leaving it around) and then you will find the truth of your products in people's reactions to them.
If you have got it right, then open up your first wee store, if that provides you all with a good livelihood, then and only then think of the next step.
QUESTION
Sam, UK
From conception of the business idea to being up and running, how long did it take Anita to go from being in the red to being in the in the black?
My partner is looking into starting up but we have no idea how long it could take to start making money!
ANSWER
Anita Roddick, founder of The Body Shop
It doesn't work like that as you keep investing to develop the product or the concept. Why not think this way - will it provide me with a livelihood?
QUESTION
M.F. Dossa, Sri Lanka
How important is it to position one's product, particularly if your major competitor has positioned himself (successfully) on value for money i.e. low price? But in blind tests (of fruit drinks), my competitor fails miserably (90% prefer my company's products). How should I communicate with the market place?
ANSWER
Simon Edwards, marketing director at Cobra Beer
When consumers are faced with a choice of brands, they will position your product relative to the other brands, based on how well they think each product meets their needs. As positioning is effectively the ranking of your product by consumers, positioning is critical because it will determine whether a consumer will purchase your product or choose a competitor's.
If you are entering a crowded market, the more distinct your product is and the more that your product has an advantage over the competition, the more attractive its position will be to the consumer and therefore the more likely they will be to buy your product.
The fact that a well-established, major competitor has positioned himself on low price would make it unwise to try to adopt the same positioning. Generally, the more established and bigger a company is, the longer it can sustain a lower price if a price war kicks off.
So, unless you have found a different source, ingredients, or production technique that allows you to sustain a low price, I wouldn't go head-to-head with them on price. Ideally, the positioning you adopt should also be sustainable so that you reap the benefits of your work for as long as possible.
Whatever positioning you adopt, it is essential that you can substantiate it. It is very unlikely consumers will purchase a product twice if your product claims don't meet the expectations that they create in the mind of the consumer.
If your product is preferred on taste by 90% of consumers, you have found a great positioning. But you are going to have to be able to substantiate a claim like that with independent evidence. You should also bear in mind that, while it is perfectly legal to make comparative claims against other brands and even name the other brand, the evidence will also have to be able to stand up in court, as I would imagine that large competitors will not think twice about getting involved in lengthy and expensive court case to try to discourage further comparative claims made against them.
An alternative is to make a non-direct comparative claim along the lines of 'the fruit juice preferred by nine out of 10 adults/kids' (or whoever the target market is). But this claim will still need to be independently substantiated. Don't be afraid of substantiating your claims as credibility in advertising is definitely appreciated by consumers!
QUESTION
Stevie M, UK
I am thinking about investing in a pal of mine's new clothing business. He's extremely talented and has good drive and business sense, but this is a gamble and could leave me in a bit of financial trouble if it fails.
What are the biggest traps to look out for when starting out in a venture like this?
ANSWER
David Wilkinson, partner, Ernst & Young
Your question suggests that you are not going to be closely involved in running the business.
If that is the case, one trap you may be falling into is to invest more than you can afford to lose in someone else's company when you have no control over events.
If possible, insist that you have an involvement in decision-making and access to financial information.
Then at least you can look out for traps and pitfalls such as:
-
Over-reliance on a small number of large customers, or even one - try to spread the risk.
- Overtrading - growing the business without adequate funding in place to cope with the working capital requirements.
- Allowing your cost base to build up in anticipation of sales that do not happen - be mean, particularly in the early stages!
- Failing to manage cash, by not looking ahead to identify forthcoming requirements, not collecting debts quickly enough and not managing creditors - cash is king!
- Failing to keep the bank informed - keep talking to your funders.
- Losing control of the business due to a lack of management information - produce simple, timely, sensible information.
- Building up stocks in anticipation of sales that do not happen - don't believe too much in your forecasts, they will always be wrong!
- Failing to meet your customers' requirements - deliver on time and to the required specification.
- Failing to allow for the unexpected - keep something in reserve, because the unexpected will happen!
- Losing key employees - work out who is critical to the business and what you need to do to keep them.
- Going into the unknown without proper advice - good advice may seem expensive, but it is usually not as expensive as the potential mistake.
- Dilution - if money runs out and new investment is sought, the new investors have the whip hand and the early investors always lose out.
Investing in someone else's business is risky. Professionals manage a portfolio of investments and they always expect some to go wrong, however much they know about the companies and their industries - they still have others that will be successful.
You are only investing in one business - make sure you can afford for it to go wrong!
QUESTION
Michael, UK
I am trying to start my own business (which would involve making and selling a number of my own food recipes) and was hoping you could give me some advice as to how to get the project off the ground, for example, funding the project, marketing and distribution.
ANSWER
Judith Rutherford, head of Business Link for London
Starting a business is a serious undertaking and should be approached accordingly.
The key is to look before you leap. Although such a brief response can't cover all of the issues involved, there are a number of key steps worth noting.
You need to qualify your idea and be sure that it has commercial potential. You also need to research the market and competitors. I would advise you to approach a relevant person to be your sounding board as early on in the process as possible.
As you progress down the planning track, you'll need to work out the vision for your business and its goals and then put together a viable business plan with measurable objectives and financial forecasts.
This will enable you to approach lenders or investors for the capital you need to get the business off the ground. Once you've got to this stage, you can then look at the forms of business you might adopt (for example, Sole Trader, Limited Company).
QUESTION
Tim, UK
I have been trying to start my own business for the last two years but find myself in a catch-22 position.
Although investors say they like the business plan they are unwilling to invest until we get a commitment from some customers. However, customers are unwilling to commit until they can see a financially sound company. How can I get out of this catch-22 position?
ANSWER
Judith Rutherford, head of Business Link for London
There are two funding options that may help resolve your problem.
Firstly, the Small Firms Loan Guarantee Scheme, where 75% of the value of the loan is underwritten by the government. This is available through High Street banks.
Secondly, depending on your business type, location and other factors, there may be specific grants or loans available to you.
Many areas in the country run 'Access to Finance' schemes under one name or another, usually through the local Business Link, which help businesses become finance-ready and source funding.
I would suggest contacting your local Business Link and investigating www.j4b.co.uk for further information.
QUESTION
Richard Armstrong, Swaziland
We have a small advertising company with six full-time staff and several 'outsourced' staff. We have been running for two-and-half years and have never applied for or used an overdraft facility.
Our cashflow is okay, though sometimes we do have to do a bit of juggling to get through small crises. It seems that most large companies use an overdraft facility - we intend on becoming a large company but when is it time to use an overdraft? Is it necessary at all to use such a service?
ANSWER
Peter Ibbetson, head of NatWest Business Banking
You have already identified some of the key reasons why it is good to have the comfort of an overdraft facility available to your business when you need it.
Sooner or later something unexpected is bound come about, which could well be an opportunity rather then something unpleasant and in either event you may require the additional finance quickly.
The point is don't let the unexpected take you by surprise - the key is flexible financial planning and with the right package you will have your financial armoury in place before you need it.
Your bank manager or financial adviser in Swaziland should be able to help you to decide on the best options for your business.
QUESTIONS
Derek Jones, UK
I am interested in buying a 12-bedroom pub/hotel in a popular tourist spot.
Although it is not trading well at present, I am sure with a fresh outlook the business will thrive. As I have yet to see accounts, my general question is would a bank, depending on circumstances, be prepared to back this sort of venture?
I would have about £150k to put in and would need to borrow about £350k.
ANSWER
Peter Ibbetson, head of NatWest Business Banking
The banks are always keen to discuss viable business propositions. I would suggest that your starting point would be to review the company's accounts and begin to develop your business plan.
If you have no experience in the area, there are many advisers available to assist you with this process. This will help you to identify for yourself the opportunities and problems with the business, which you will then be able to develop to your advantage.
It is positive that you have a personal contribution to make to the project as this helps demonstrate you commitment to a lender.
You may find The Hotel and Catering International Management Association a useful source of information on your sector, www.hcima.org.uk.
QUESTION
Yury, UK
As management and leadership styles vary across cultures and national borders, do you still have a common framework when offering your expertise? How do you adapt to local conditions?
ANSWER
Professor Nigel Nicholson, London Business School
You have raised one of the most complex and controversial questions in management science.
I shall try to keep my answer straightforward:
-
1) I believe that the deep drivers of leadership are universal, related to the genetics of character and cognition, but for these to emerge and turn into actual leadership requires a supportive environment and sympathetic culture.
- 2) There are many different kinds of leadership roles, and each requires a different style. Leadership roles also change over time, so must the style of the leader or manager.
- 3) National culture is a set of conditions that affects both 1) & 2) - how leaders are developed, and the kinds of positions they occupy. Leadership is also concerned with values, and therefore leaders have to be in harmony with the surrounding culture.
The answer to your question is, therefore, yes I do have a framework that would be take too long to explain in detail, but which is based upon:
-
a) a model of human individual differences and types
- b) a model of types of leadership situations and their demands, and
- c) ideas about the processes that achieve the best fit between these.
To find out more you'll have to read my books or come on one of the leadership courses I direct!
QUESTION
Iain Humphries,
UK
How do you motivate a team, group or company when the staff know that they will not receive any training, pay rise, bonus or incentives despite the company making big profits. Please note that the staff work hard and long hours without overtime.
ANSWER
Professor Nigel Nicholson, London Business School
In a word - communicate! I sense a very particular story beneath your brief question, so I can only speak here in the most general terms.
The best businesses create a sense of community in which there is a shared destiny for all members.
This can mean that wealth-sharing is deferred for the sake of business-building investments.
People can accept such a strategy so long as they don't think they are being treated cynically or exploited.
It is the leadership's job to create a culture through open communications and trust in which people feel committed, involved, recognised and fairly treated.
If you are the leader, I suggest you call them all together in a 'town hall meeting' and you confront the issue directly.
Give them the recognition for the long hours etc., pick out for praise as many as deserve it, and explain to them the current state of the business and its future strategic trajectory in terms of what this means for costs, revenues and incentives.
Be frank about the problems and challenges, and commit to soliciting their partnership and help in solving them. Get people to voice their immediate current concerns or questions.
If there is something you can't answer, commit to a deferred response. Take your people with you.
QUESTION
M. Forbes, UK
I am finalising a business plan and about to approach and recruit two ex-colleagues in an effort to strengthen the management team. How do I prevent these ex-colleagues from taking my idea and 'going it alone'?
N.B. the idea is an internet-based data service, not a physical product where a patent could be obtained.
ANSWER
David Ladds, law lecturer, King's College London
You could insist that they sign a confidentiality and non-competition agreement. The first part of this would forbid them from going into competition with you for a certain period of time or within a defined geographical region.
The terms of this must not be drafted too widely or the courts may deem it too restrictive and refuse to enforce the promise.
By signing a confidentiality agreement - also known as a non-disclosure agreement or 'NDA' - the other party undertakes not to disclose any confidential information he learns while working with you.
You should be aware that in practice such agreements can be difficult to enforce as it may be hard to prove that the particular information is genuinely confidential (merely labelling it 'secret' will not suffice) or that an individual is using secret information or disclosing it to others.
QUESTION
Richard Dance, UK
What are the legal or commercial advantages and disadvantages of starting up a company offshore rather than in the UK? For example, a base in the Isle of Man?
ANSWER
David Ladds, law lecturer, King's College London
The main advantage of trading through an offshore company is the ability to avoid paying tax on your profits. Unfortunately, there is more to trading offshore than just registering your company elsewhere.
For tax purposes, a company is resident in the UK and liable to UK tax if it is registered here. Companies registered in the Isle of Man (or any other offshore jurisdiction) will still be deemed resident in the UK if their 'central management and control' is exercised in the UK.
It's not enough just to appoint an offshore nominee and hold board meetings in that country if it's actually you running the company.
Many companies manage to exist offshore and enjoy the benefits of doing so but you should be aware that the rules governing such companies are extremely complicated so take advice before committing yourself.
Starting and running an offshore company also costs many times more than it does on the UK mainland.
The opinions expressed above are those of the panel of experts, not the BBC's. The advice is not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.
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